Fixed Income Fund NAV determinant: Simplified

Assume last year inflation rate is at 3%. You bought a 6% coupon bond with $ 10,000 which repays you in 2 years. So your real net return was (6-3) = 3% annually. 


This year, inflation rate goes up to 6%. . No one wants to buy the same bond you have now for $ 10,000 because the real net return is 0%. 

Housing Loan Reduction from EPF Account II - To withdraw or not to withdraw?

Question I have been asking: Is it always wise to withdraw EPF Account 2 for Home Mortgage Capital Repayment or in layman terms, reducing housing loan?

In the The Do’s and Don’t’s of EPF Withdrawal during an interview session at ntv7, Mr Yap Ming Hui stated that generally, if the “mortgage interest rate far exceed 5% (EPF dividend return)”, then it is advisable to do so.

Next question is, how much is “far exceeding” in this case?

I have been doing some simulation.

Referring to the table here:

OPR, BLR & Inflation - The Correlation

BLR, or Base Lending Rate, quoted in percentage, simply put, is the cost of borrowing money from financial institutions for any man in the street.

For house buyers and buyers, this all seem familiar - you want the lowest interest rate for your mortgage loan. However, at any given time, BLR is fixed, so the only variable in this equation is the percentage discount (BLR minus) or premium (BLR plus) from the BLR rate.

Overnight Policy Rate or OPR refers to the interest rate at which a financial institution lend liquid funds (immediately available money) to another financial institution overnight. This rate is determined by central bank, as in Malaysia, Bank Negara Malaysia during its Monetary Policy Meeting and it is a standardized rate for which banks can access short-term financing from central bank depositories.

The BLR is adjusted in correlation to OPR. The cause and effect of OPR adjustment is vast in terms of micro and macro economics, but suffice for this post here to illustrate the direct factors and effects.

Hike in the cost of borrowing has the intention of slowing down consumer demand & spending in a overheated economy, usually characterized by a steadily increasing inflation rate, uptrending share market and business activity. Example, the recent 25 bps in OPR translates into 35 bps in BLR at 6.60%.